What a money market account actually does
A money market account is a savings account that pays you interest in exchange for keeping a larger balance on hand. The bank uses your money to lend to other customers or buy short-term securities, and shares some of that income with you as interest. The tradeoff is that you can only withdraw money a limited number of times per month—typically six times—before the bank charges you a fee or closes the account.
The interest rate on a money market account changes based on what the Federal Reserve does with its benchmark rate. When the Fed raises rates, banks raise the rates they offer on money market accounts. When the Fed cuts rates, your rate drops. This means your earnings are not locked in like they are with a certificate of deposit (CD).
Money market accounts sit between regular savings accounts and CDs in terms of how much interest they pay. A regular savings account at most banks pays almost nothing—often 0.01 percent or less. A money market account at the same bank might pay 4 to 5 percent (rates vary by bank and change weekly). A CD locks in a higher rate for a set time, but you cannot touch the money without a penalty.
Key Takeaways
- Money market accounts pay interest that rises and falls with the Federal Reserve's rate changes, so your earnings are not may provide to stay the same.
- You can withdraw money only a limited number of times per month—usually six—before facing a fee or account closure.
- The interest rate is higher than a regular savings account but lower than a CD, and you keep full access to your money.
- Online banks typically offer higher rates on money market accounts than brick-and-mortar banks because they have lower overhead costs.
- Money market accounts are FDIC-insured up to $250,000, so your principal is protected even if the bank fails.
How the withdrawal limit works in practice
Federal rules once capped money market account withdrawals at six per month. That rule was suspended in 2020, but most banks kept the limit anyway because it helps them manage their cash flow. Some banks now allow unlimited withdrawals, while others still enforce the six-per-month rule. Check your bank's terms before opening an account if frequent withdrawals matter to you.
The six-withdrawal limit typically includes transfers to another account, checks you write from the account, and debit card withdrawals. In-person withdrawals at a branch or ATM often do not count against the limit. If you exceed the limit, the bank may charge a fee (usually $10 to $25 per excess withdrawal) or close the account and move your money to a regular savings account.
This limit exists because banks need to keep a certain amount of cash on hand to cover withdrawals. If too many customers pull money out at once, the bank has to sell investments at a loss or borrow money at a higher cost. The withdrawal cap protects the bank's ability to pay the interest rate it promised.
Interest rates and how they change
Money market account rates move in the same direction as the Federal Reserve's benchmark rate, but they do not move at the same speed. When the Fed raises its rate by 0.25 percent, banks might raise their money market rates by 0.25 percent, or they might raise them by 0.10 percent, or they might not raise them at all. Banks compete for deposits by offering higher rates, but they also protect their profit margins by not passing along every rate increase.
Online banks almost always offer higher rates than traditional banks. An online bank might pay 4.50 percent while a brick-and-mortar bank pays 1.50 percent on the same type of account. The difference comes down to cost: online banks do not have to pay for branch staff, real estate, or ATM networks. They pass those savings to customers in the form of higher rates.
Your rate can drop at any time, and the bank does not have to give you advance notice in most cases. Some banks send an email or letter, but they are not required to. If rates drop and you want to move your money, you can transfer it to another bank's money market account without penalty. There is no early withdrawal fee like there is with a CD.
FDIC insurance and what it covers
Money market accounts are FDIC-insured up to $250,000 per depositor, per bank. This means if the bank fails, the Federal Deposit Insurance Corporation will reimburse you for the full balance up to that limit. The insurance covers the principal you deposited plus any interest you earned.
The $250,000 limit applies per bank, not per account. If you have a money market account and a regular savings account at the same bank, the FDIC covers both of them together up to $250,000 total. If you have money market accounts at two different banks, each account is covered separately up to $250,000.
FDIC insurance does not cover losses from fraud, theft, or your own mistakes. If someone steals your login credentials and drains the account, the bank may reimburse you under its fraud protection policy, but the FDIC will not. If you accidentally transfer money to the wrong account, the FDIC will not recover it for you.
Money market accounts versus other savings options
A regular savings account is easier to use but pays almost nothing. You can withdraw money as many times as you want without penalty, but the interest rate is typically 0.01 to 0.05 percent. A money market account pays 4 to 5 percent (rates vary) but limits your withdrawals to six per month.
A certificate of deposit (CD) locks in a higher rate for a set period—typically three months to five years. If you withdraw the money before the CD matures, you pay an early withdrawal penalty, usually equal to a few months of interest. A money market account has no early withdrawal penalty, only a fee if you exceed the monthly withdrawal limit.
A high-yield savings account is similar to a money market account but usually has no withdrawal limits and slightly lower interest rates. Some banks use the terms interchangeably. The key difference is the withdrawal cap: if you need to move money frequently, a high-yield savings account is more flexible.
| Account Type | Typical Interest Rate | Withdrawal Limit | Early Withdrawal Penalty |
|---|---|---|---|
| Regular Savings | 0.01–0.05% | None | None |
| Money Market | 4–5% | 6 per month (varies by bank) | None (but fee if limit exceeded) |
| High-Yield Savings | 4–5% | None | None |
| CD (1-year example) | 4.5–5.5% | None until maturity | Usually 3–6 months of interest |
When a money market account makes sense for your money
A money market account works well if you have money you want to keep safe and earn interest on, but you do not need to touch it more than six times a month. This is often true for an emergency fund or money you are saving for a goal that is six months to a year away.
A money market account does not work well if you need to move money frequently—for example, if you are paying bills from this account or transferring money to investments every week. In that case, a high-yield savings account with no withdrawal limits is a better fit, even if the rate is slightly lower.
A money market account also does not work well if you know you will need the money within a few months and want to lock in the highest possible rate. A CD will pay more because you commit to leaving the money untouched for a set period. If you might need the money sooner, the flexibility of a money market account is worth the slightly lower rate.
How to open a money market account and what to watch for
Opening a money market account takes 10 to 15 minutes online. You will need your Social Security number, a government-issued ID, your address, and your employment information. The bank will run a background check through ChexSystems, a banking history database. If you have unpaid overdrafts or fraud flags at other banks, you may be denied.
Before you open an account, compare rates across at least three banks. Rates change weekly, so the highest rate today may not be the highest rate next week. Check the bank's website directly rather than relying on rate comparison sites, which sometimes lag behind actual rates by a day or two.
Read the fine print about the withdrawal limit and what counts as a withdrawal. Some banks count transfers to other banks but not transfers to your own checking account at the same bank. Some banks allow unlimited ATM withdrawals but count debit card purchases. Know the rules before you open the account so you do not get hit with unexpected fees.
Frequently Asked Questions
Can I use a debit card to withdraw from a money market account?
Most banks that issue a debit card for a money market account count debit card purchases against your monthly withdrawal limit. Some banks do not issue a debit card for money market accounts at all. Check with your bank before opening the account if you plan to use a debit card.
What happens if I exceed the six-withdrawal limit?
The bank will charge you a fee, usually $10 to $25 per excess withdrawal. If you repeatedly exceed the limit, the bank may close the account and transfer your money to a regular savings account, which typically pays much lower interest. Some banks close the account on the first violation.
Is my money market account safe if the bank goes out of business?
Yes. The FDIC insures money market accounts up to $250,000 per depositor, per bank. If the bank fails, the FDIC will reimburse you for your full balance up to that limit. This protection has been in place since the 1930s and has never failed.
Can the bank lower my interest rate without warning?
Yes. Banks can lower money market rates at any time without advance notice, though many send an email or letter as a courtesy. If your rate drops and you want a higher rate, you can transfer your money to another bank's money market account without penalty or fee.
How is a money market account different from a money market fund?
A money market account is a bank product insured by the FDIC. A money market fund is an investment product sold by brokerages and mutual fund companies, and it is not FDIC-insured. Money market funds are not the same thing and carry different risks.